“[Last year] saw a reduction in payroll taxes collected, but also an increase in expected mortality among Social Security recipients,” Michael Finke, professor and Frank M. Engle Chair of Economic Security Research at The American College of Financial Services, told ThinkAdvisor.
“Neither had a big impact on solvency projections, since they largely canceled each other out, and you see that the modest projected reduction in the actuarial balance is the result of using different and more accurate methodology.
“The bottom line is that we’ve known for years that either taxes collected will need to rise, benefits will need to be reduced, or inflation adjustments will need to be more modest. It’s more than likely that politicians will wait as long as possible before making the hard choices, but the alternative of a 24% benefit cut is a political death sentence.”
Jamie Hopkins, managing partner of wealth solutions at Carson Group, said in a tweet: “I’m happy SS report was better than expected but I wonder if the full impact is still a year away.”
Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, told ThinkAdvisor that in the press conference on the report, SSA Chief Actuary Stephen Goss estimated the Social Security cost-of-living adjustment at 3.1% but said that “due to widespread reports to the media from ‘other prognosticators,’ it looks like it will be around 6%.”
Johnson, who produces monthly estimates of the Social Security COLA based on the Consumer Price Index, added that this was the “closest to insolvency [for the trust fund] I’ve ever seen.”
Hospital Insurance, Medicare
Other programs discussed in the report included The Hospital Insurance Trust Fund, or Medicare Part A, which helps pay for inpatient hospital care, and is scheduled to pay benefits until 2026, the same as reported last year. Once depleted, program income will be sufficient to pay 91% of total scheduled benefits.
The Supplemental Medical Insurance Trust Fund has two accounts: Medicare Part B (physician and outpatient services) and Part D (prescription drug benefits). The trustees noted that these are “adequately financed into the indefinite future” because they are financed from general revenue and beneficiary premiums, by law.
Changes From 2020 Trustees Report
The actuarial changes of the OASI and DI trust funds increased to 3.54% from 3.21% of taxable payroll since last year, but that may be due to a combination of factors from changes in methodology to legislation to demographics.
Some long-range assumptions were changed, the trustees stated:
- The total fertility rate was raised to 2.0 births per woman from 1.95.
- The unemployment rate fell to 4.5% from 5%.
- Near-term economic and demographic assumptions reflected the pandemic and 2020 recession, which resulted in lower payroll tax income and lower revenue from income taxation benefits.
The trustees board is made up of Janet Yellen, secretary of the treasury and managing trustee of the trust funds; Martin J. Walsh, secretary of labor; Xavier Becerra, secretary of health and human services and Kilolo Kijakazi, acting commissioner of Social Security.
On a final note, Finke added that advisors ”should anticipate an increase in payroll taxes, particularly among high earners, and only a modest reduction in future projected benefits.”